Explaining the IDS vs Osborne split on welfare

‘Do you know what they used to call us?’ asked Theresa May ten years ago. ‘The nasty party.’ No one used that phrase, but ‘they’ had a point. The Conservatives seemed to be a group of efficient mercenaries, useful for fighting the economic war that broke out in the 1970s. But in the good times they seemed robotic, Spock-like and heartless. The message was: if you work, we’re with you. If you shirk, you’re the enemy. This was summed up by Peter Lilley’s infamous ‘Little List’ skit, above. ANd again in George Osborne’s 2012 Tory conference speech, where he invited his audience to imagine the anger of a worker passing “the closed blinds of their next door neighbour sleeping off a life on benefits”. It was the same idea: conjure up a demon. And this revived the danger of the ‘nasty party’ returning, as I say in my Telegraph column today.

Iain Duncan Smith developed the social justice agenda outside the Tory Party, and sometimes it seems as if it has been bolted on to the party, rather than become integral to it. He talks about saving lives, not money. And this certainly seems to grate with George Osborne. The two best books about this government: Janan Ganesh’s biography of Osborne and Matthew d’Ancona’s In It Together both reveal – in vivid terms – the Chancellor’s deep suspicion of both IDS and the social justice agenda. They are worth quoting in full.

‘Osborne questioned the analytical rigour of the Christian conservatives who hovered behind the [welfare reform] project. “He thinks the people pushing this are such total advocates and evangelicals that they blind themselves to any downside” says a colleague… As Osborne hopes to make further cuts in welfare, his quarrels with IDS are not over.’

And d’Ancona…

‘It was becoming depressingly clear to [Osborne] that [IDS] did not regard welfare cuts as his priority but was engaged (as Osborne saw it) in a quasi-religious programme of mass redemption. “He resists every cut I propose” the Chancellor complained to his colleagues.’

There is a strong Conservative tradition that regards any moral cause – religious or civic – with suspicion. In his famous 1960 conference speech, Iain Macleod (right) summed it up nicely: ‘The socialists can scheme their schemes and the Liberals can dream their dreams. But we have work to do.’ His point: that Conservatives were practical people, not ideologues. Harold Wilson was happy to accept that dividing line, and told his conference the next year that ‘the Labour party is a moral crusade or it is nothing’. Both men echoed John Stuart Mill who famously said that the Conservatives were the ‘stupid’ party – they don’t really do big plans, and attract people who are (in his view) too stupid to appreciate the beauty of political schemes.

And there is a large strand of Conservatism that believes it has cause to fear ideology: religious or not. Didn’t Gordon Brown bang on about the “moral arc of the universe” while trashing the economy and isolating the poor? There is a danger that moral crusades are, in fact, aimed only at establishing the virtue of the crusaders. As TS Eliot put it:-

Half the harm that is done in this world is due to people who want to feel important. They don’t mean to do harm – but the harm does not interest them. Or they do not see it, or they justify it because they are absorbed in the endless struggle.

I suspect Osborne agrees with Eliot on this. Many Conservatives can see themselves as level-headed remedy to this idealism: the party of getting the deficit down, and the work done. So Osborne’s approach fits into a long and proud Conservative tradition. He has seen his party forget about electability, in pursuit of crazy aims. He’s rightly determined that this doesn’t happen again.

But IDS represents another Conservative tradition: one that does have ideals, and moral missions. To him, welfare reform is not just about what’s expedient, it’s about what’s right. The famous Wisconsin ‘tough love’ welfare experiment that he based his reforms on actually didn’t save that much money. It wasn’t an exercise in hacking back the state: the definitive book on Wisconsin reforms, by Larry Mead, was entitled “government matters” (pictured, right).

Welfare reform, if done properly, is expensive: it means coaching people back to work, it means several false starts and giving them a 2nd, 3rd, 4th and 20th chance to get it right.

IDS was mocked in some quarters for invoking Wilberforce in his speech yesterday, but I think his analogy stands. If Wilberforce were around today, he’d cheer on Theresa May in her addressing modern slavery. (It’s defined as someone who has to work, but in such conditions that the person doesn’t get to keep any money for the work they do). But he would also see a few parallels in Channel 4’s Benefits Street. As a single mother with two kids, White Dee is in a welfare trap – that is to say, if she found work, and wanted to increase her hours, she’d lose every penny of the extra she earned. She wouldn’t get to keep any extra money for the work they she’d do. Here’s the graph:-

There is a time for Conservatives to be cool, practical and eschew ideology. Then there is a time for them to look at the above, and grow outraged at the very notion of 100 per cent tax rates. And the people being failed are those right at the bottom of our society. That the Conservatives (as Churchill said) are the party of the ladder: it’s time to extend the ladder of work to those in the welfare trap, so they can climb out. The above graph shows that the current system (that would be abolished by Universal Credits) kicks them down, every time they try to climb. And this isn’t just an economic failure, it’s a moral failure.

So I’d argue that IDS is right to get angry at the abuses, and to view welfare reform as question of doing what’s right. But Osborne would be right in arguing that snarling at those on benefits now and again may help win the party votes with the C2 workers, who (polls show) resent the way so many seem to be able to choose welfare dependency as a lifestyle. But this is only one way of looking at it. Overall, do voters warm to a Tory party that emphasises (sometimes with relish) welfare cuts? Or one that emphasises the need to change lives? From what I gather, Lynton Crosby believes the latter – and has polling data to back him (and IDS) up.

IDS says in a Telegraph interview today that the Tories are not really against anyone. Not the idea you see from the Tory advert( below) contrasting a picture of a family on benefits (hooray!) with ‘those who won’t work’ (boo!). It’s nasty, divisive and – in effect – updating Lilley’s ‘little list’ ditty for the 21st century.

That’s why David Cameron needs to step in, and set the tone on welfare reform once and for all. This is a struggle between two Tory traditions, but in this case I think it boils down to a contest between principle and expediency. I suspect the Prime Minister knows that there really is only one choice to be made.

The reason the Tories have been labeled the nasty party, is that in their effort to cut abuse of the welfare system, they have hurt the poorest in our society. The full effects of the cuts have not been thought through. The bedroom tax is applied to people when there are no smaller homes for them to move into. The requirement to pay some of the community charge hits those with the lowest incomes hardest.
Additional they have neglected traditional Tory voters. Those who have bought their own homes and then lose their job, find they get no help to pay house insurance or with maintenance, where as those in rented accommodation have none of those costs.

George Scoresby

Oh for God’s sake it’s just class Britain. The Patrician Tory is immune to how us little people live and the earnest IDS types keep trying to hit the patricians over the head with that reality. The Patricians mock the earnestness, which fires up us IDS lovies all the more.

David Cameron stepping is is like the Queen treading in a dog turd. No one wants to see it happen, and if it does, no one will admit that it ever happened.

agneau

Would this IDS who is trying to wean people off taxpayer funded benefits be the same IDS who gets all his income from the taxpayer (or because he has a taxpayer funded job) and whose family receives rather large taxpayer funded subsidies for their agricultural activities? Surely not?

Mynydd

I quote “That’s why David Cameron needs to step in, and set the tone on welfare reform once and for all” Be real Mr Cameron is only PR and talk, talk. He has had almost four years to step in between Mr Osborne and Mr Duncan Smith but has failed to do so. There is no chance he will take action this side of a general election.

HJ777

I don’t see that there is any advantage for the Tories in specifically ‘demonising’ those on benefits. While some languishing on benefits may be feckless, many are not, and even those who are feckless have been heavily incentivised by the current system to be so.

They should just make it clear than their mission is to prevent people languishing on benefits by creating opportunities and the right incentives. It can’t be a good thing that people languish on benefits, whatever the cause or the type of person.

Surely that would be not only a sensible aim but also a popular message with everyone?

greggf

Welfare reform is not a moral mission nor is it about addressing modern slavery, it’s not even about doing what’s right.
It’s simply about using dry actuarial principes to ensure that what is paid in determines what may be paid out. Indeed the whole system should be handed over to actuaries for implementation as they do in other countries.

HookesLaw

Welfare covers a wide variety of items. Ultimately the nation cannot spend more than it can afford and it has to prioritise.

Mynydd

Last month the government overspent by £9Bn If you stopped all welfare payment would they balance the books

sungeipatani

Yes.

Andy

Abolish Overseas Aid and you reduce the Deficit by 10%.

George Scoresby

Yes, but the recipients might get off their sofas and make trouble in the streets, so that isn’t going to happen.

Lee Moore

it’s as well in these discussions to get the basic arithmetic clear. If you have welfare then you must have a welfare trap. It is arithmetically unavoidable. For if you do not withdraw benefits at a steep rate, you find yourself paying benefits to people earning the median wage and beyond, and that requires very high tax rates….which simply lead to less work, less tax actually collected, and bankruptcy. Welfare => welfare trap is a matter of arithmetic.

However, the problem that you are trying to solve with a welfare trap is not how to make the poor considerably richer by getting real jobs (for if they get welfare, real jobs cannot make them very much richer.) It is how to encourage the poor into real jobs, even though they will not be much richer as a result. And the answer is that the real jobs have to be more attractive, in terms of hours of labour, and comfort and working conditions of labour, than the labour you have to put in to get welfare. If you have to do nothing to get welfare, then obviously no real job can compete. But if, to get welfare, you have to do 60 hours a week of ditch digging in the rain, sleet and snow, while your favourite TV show is on, then most real jobs will be more fun, and shorter hours.

This is not a matter of caring, it’s a matter of microeconomics. If you get paid X for doing nothing, then doing 40 hours a week of a boring tedious job for 1.1X simply doesn’t make any sense.

HookesLaw

You make good points. Too many have slid away from the work ethic and ‘workfare’ (?) types of policy would seem to be a good idea. And we should speak out more strongly against people who as you say complain that it is not worthwhile.
Sadly I doubt Labour will give much support. We just have to hope they never get back in power.

Jeff Evans

The problem with our benefits and tax systems is that most of the systems have stepped increases or decreases. We could solve these problems by having variable taxes defined by a non-linear function, including negative income tax for those on lower or no income. Now everything is computerised, it would not be beyond the wit of man to achieve this, if only the political will were there.

Lee Moore

Up to a point Lord Copper.

1. The welfare trap is not a tax problem, it’s a withdrawal of benefit problem.

2. You could certainly use a non linear function to withdraw benefits (though my faith in the ability of the government, its computers and its clerks to cope with such refinements is limited.)

3. But even if implemented successfully, you would only be replacing a series of steps around which the withdrawal of benefit rate swings between, say, 70% and 110%, with a smooth withdrawal of benefit rate of 90%. You might shave off a weeny bit of silliness by avoiding steps and so keeping the marginal rate below 100%, but the fundamental problem remains. You’re still left with a 90% rate. If you try to have a smooth 50% rate, say, you’ll still be paying welfare to people on £40,000 a year. Or rather you won’t – as by then the budget deficit and quantitative easing will be at Weimar levels, with Weimar consequences.

sfin

I’m no economist – but how about tackling the problem from the other side of the equation…
…Lets make the boring, tedious job the new 1.0X and pay welfare at a maximum of 0.5X – or better still, return welfare to it’s original idea of a safety net and pay rents and fuel bills directly and re-introduce food vouchers. Those with an interest in a Sky TV subscription, or a significant interest in investing in Camelot, or the alcohol or tobacco companies can fund their lifestyle choices by doing what the rest of us do – working for them.

Lee Moore

You make two points, both of which are worthy of a proper economist.

(a) if welfare earns you 0.5X and a real job earns you 1.0X, then the scale of your welfare trap is reduced. It’s still there and you’ll still face a fairly hefty rate of welfare benefit withdrawal, but it’s a lot better than 0.9X plays 1.0X. The issue, obviously, is whether 0.5X provides the standard of living that the political community wishes to provide. 1.0X will not be much as it will reflect the productivity of the low skilled folk who tend to be on welfare. So 0.5X will be half of not much. The welfare trap can be completely eliminated by reducing welfare not from 0.9X to 0.5X, but from 0.9X to 0.0X. But do we want to go there ?

(b) providing benefits in kind rather than in cash is an interesting one. Back in the days of Mrs T, they began the switch to cash, on the theory that benefits in kind infantilised the beneficiaries, and prepared them poorly for standing on their own two feet. No doubt there was something to be said for this. I suspect it makes a bit of sense for the short term welfare beneficiaries, who still aim to get back to the real economy in short order. But for the long term welfare beneficiary I suspect it would be better to go back to in kind benefits rather than cash. If you get a Christmas present that cost the giver £100, it is always worth much less to you than £100 in cash. Because with £100 in cash, you decide what the money gets spent on. So providing long term welfare beneficiaries with benefits in kind not cash would greatly enhance the value of a real job to them, for then they would swap benefits (decided by somebody else) for cash (which they could spend as the wished.) There is a large value to having a choice.

sfin

An interesting read. Obviously, the question is a lot more complex than a purely economic one, distinguishing between those that can’t and those that won’t, for one thing – and providing a ‘standard of living’ for the former whilst avoiding the option of providing it, as a lifestyle choice, to the latter.

Benefit in kind (and I aim this at the ‘those that won’t’ category) would achieve two things – it would incentivise, because, as you rightly point out, even the same value of the benefits in cash, from paid employment, would be better than food vouchers and the like. Secondly it would avoid some social problems as there are always some who, faced with the choice of food for the children, or a night in the pub – invariably choose the latter. These people are already infantilised.

Rockin Ron

Iain Duncan Smith finds that he is out of step with the leaders of his party because, unlike them, he has values and principles he cherishes more than power. He is a decent person stuck with the Nasty Party.
Can anyone identify any positive values demonstrated by Cameron, Osborne, Hague or Gove?

Andy

Oh Michael Gove has ‘values and principles he cherishes’. He is busy reforming education, and like IDS at Welfare he is being opposed at every verse end. Labour has fought at every twist and turn to defend its vested interests.

sarahsmith232

The moral arc of the universe!! these people are borderline insane. That person was never anything other than a self-serving egotist with a Trillion pound play-set at it’s disposal. Long past the time that these unhinged Left-wingers should have become aware of what it is that they actually are.
What was the real reason why he was so greatly concerned about Africa? ‘Cause it provided him with a way to satiate his saviour figure fantasies. A male that really does believe that they are an unusually important part of the moral arc of the universe and the 4th biggest economy on earth is never going to be a happy combination. I’ll take a morally ambiguous deficit cutter any day of the week over that, thank you.

R2-D2

I don’t see why preserving the current system of welfare traps and 100% marginal tax rate should be seen as “cool” and “practical”. There may be moral reasons to reform the benefit system, but the strongest reason is pragmatic. It is just stupid to run a system that discourages working. I can see that it may have benefited Labour by creating a permanent Labour-voting underclass, but the only reason I can think of for Tories to preserve it is their ideological support for “targeted” benefits, which appear to allow small reductions in the nominal tax rates but which are the root cause of the problem.

Andy

It is true that it is to Labour’s advantage to have a huge ‘benefit vote’. The trouble is the system has been built piecemeal and reforming it is very very difficult. That is the point of Universal Credit. But we also need radical Tax reform too – personally I favour a simple Flat Tax – and if you had Tax reform you might make Benefit reform easier.

BarkingAtTreehuggers

Following yesterday’s Daily Politics and Question Time only two things matter today:
1) the Right is split
2) the Union is split
Will the BBC devote sufficient airtime emphasising these facts?

telemachus

IDS gets nearest to the moral; arc of the universe
I know who I would back

Fergus Pickering

Be afraid IDS. Be very afraid.

Patricia

“‘Do you know what they used to call us?’ asked Theresa May ten years ago. ‘The nasty party.’ No one used that phrase, but ‘they’ had a point. The Conservatives seemed to be a group of efficient mercenaries, useful for fighting the economic war that broke out in the 1970s.”
I always used to think of the Conservatives as the Party who mopped up the mess after a Labour Government had been in power – they had no choice but to be tough.
These days any Tory MP who tries to get to the heart of a difficult issue seems to be fighting a lone battle. I think the moment for David Cameron to step in and get tough on welfare has passed.

HookesLaw

The govt have said they want to cut a further 12 billion from welafare. Mr Nelson seems to regard ministers doing ther relative jobs as ‘splits’.

Mynydd

I have lost count of the number of times Mr Cameron/Osborne has said we want further cuts in welfare. Why didn’t they get the sums right in the first place.

Dougie

They probably didn’t anticipate that so many of the jobs created by their economic policies would be taken by immigrants.